Indirect Taxation- Budget 2011

Madhukar N Hiregange FCA

SUCCESS THRU ETHICS
Madhukar N Hiregange FCA

COVERAGE TODAY
5/30/2012

Customs Central Excise Service Tax Tariff Service Tax Procedures Ideal Budget Components FM objectives How it is in Reality? Empower Your Environment Q/A after each segment

Hiregange

CUSTOMS
5/30/2012

Major Reform Self Assessment- Avoids demurrage, corruption- legalised dacoity, fast turnaround for exporters/ domestic players, avoid dependence on intermediaries [ CHA]- finally reduced transaction cost. Rationalization of rates- BCD of 2 & 3 % to 2.5%.

Hiregange

Peak rate held Good for country

3

CENTRAL EXCISE
5/30/2012

Major Reform- 130 items mainly consumer goods in net @ 1% without cenvat credit benefit. [ icaiarticles section] Out of above 76 items @5% with cenvat credit Are all eligible for initial 150 Lakhs limit? - Only specified items [ see list] - Branded Goods of Others NO unless OEM or located in rural area - Previous year manufactured goods exceeds Rs. 400 lakhs [ traded or exported goods not to be considered]

Hiregange

SSI EXEMPTION
5/30/2012

- Job work unless exempted [ valued at sellers price or if captively consumed by buyer then at COP+10% ] - Manufactured/ Job work goods removed at full rate of duty not to be reckoned If eligible then declaration on reaching 90 lakhs of value of clearances

Hiregange

BRANDED TEXTILE GOODS

5/30/2012

Excise duty at 10% applicable to ready-made branded Garments and made-up articles of textiles Rule4(1A) Central Excise Rules: pay duty and comply with Central Excise procedure by the person for whom the goods are manufactured by job-workers Alternatively job worker registers & discharges duty CC Rules, 2004 amended to enable merchant manufacturers to avail of credit of duty paid on inputs, input services and capital goods SSI exemption can be availed

Hiregange

REGISTRATION + OTHERS
5/30/2012

Registration applied if not eligible for SSI exemption immediately [ 1st march over??} Examine the possibility of passing on duty cost to buyer Examine the quantum of credit available? Exercise and intimate the option Pay the duty by 5th/ 6th every month File the returns monthly/ quarterly [ SSI}

Hiregange

DISCLOSURES
5/30/2012

Intimate the records maintained, methods of accounting, process of manufacture, streams of income, option taken, doubtful issues.- Ensure dated acknowledgement. Follow meticulous movement recording and reconciliation Branded Garments Option to job worker to discharge the duty and comply.

Hiregange

WITHDRAWAL OF EXEMPTIONS
5/30/2012

About 130 exemption entries withdrawn(Notfn no.1/2011) Including cases of Nil Tariff rates A duty of 1% ad valorem imposed on these items The condition that no credit of the duty paid on input and input services. Rate for items hitherto Nil rate (by tariff) fixed at 5% ad valorem Remaining items where tariff rate is not Nil-a rate of 5% (without any condition)(Notfn 2/2011-CE)

Hiregange

INITIATIVE FOR REDUCED LITIGATION

5/30/2012

No appeal by Govt below stated figures No demand even if mistake observed by audit party- rectified. Settlement Commission

Hiregange

10

CENVAT CREDIT RULES 2004

5/30/2012

Exempted goods amended Includes goods where option exercised by the manufacturer to pay duty at concessional rate of 1% on 130 specified entries. exempted services amended. Includes services for which service provider opted for exemption on part of the value Exempted service includes trading activity

11

Hiregange

CENVAT CREDIT CAPITAL GOODS

5/30/2012

Scope Expanded-capital goods as defined at rule 2(A) outside factory of manufacture of final products for use in captive generation of power in factory This could lead to credits on windmills, turbines, hydel power stations

12

Hiregange

CENVAT CREDIT - INPUTS

5/30/2012

Definition of input rule 2(k) has been revised +All goods used in the factory by the manufacturer of the final product, +Goods including accessories cleared along with the final product & goods used for providing free warranty +Goods used for generation of electricity or steam for captive use Except those in the negative list & goods having no relationship with the manufacture of final product.

13

Hiregange

EXCLUSIONS
5/30/2012

Any goods used for the construction of a building or a civil structure or laying of foundation or making of structure for support of capital goods have been excluded. Capital goods except when used as parts and components in manufacture of final products and also does not include the motor vehicles Goods used primarily for personal use or consumption of any employee.

14

Hiregange

CENVAT CREDIT INPUT SERVICES

5/30/2012

Excludes few services such as architect, port, air port , other port, commercial or industrial construction, works contract service and construction of residential complex used in construction of building or civil structure or laying foundation or making support structure of capital goods Excludes services such as rent a cab, general insurance, authorised service station and supply of tangible goods unless used by service providers allowed to take Cenvat credit of duty paid on capital goods

15

Hiregange

5/30/2012

Excludes services of outdoor catering, beauty treatment, health service, cosmetic surgery, membership of club, etc when used primarily for personal use/consumption by employee

Hiregange

Question the very purpose of cenvat credit being to avoid the cascading effect of multi point levy has been defeated.
Example of coercion by the bureaucracy. Almost 10k+ cases would now be revisited???

16

COMMON CREDIT
5/30/2012

The heading of the rule changed as Obligation of a manufacturer or producer of final products and a provider of taxable service Cenvat credit benefit would not be allowed on inputs or input services used in or in relation to manufacture of exempted goods or for provision of exempted service (Rule6(1)) The sub rule 2 provides for separate records for receipt, consumption an inventory of inputs and the receipt and use of input services used in or in relation to manufacture of exempted/dutiable- goods & Output and exempted services

17

Hiregange

COMMON CREDIT
5/30/2012

the provider of output service providing exempted service to pay 5% on the value of exempted service and avail the Cenvat credit fully(Rule6(3)) a new option to maintain separate accounts for the receipt, consumption and inventory of inputs & and pay an amount as determined under sub-rule (3A) in respect of only input services (rule 6(3A)

Hiregange

18

COMMON CREDIT
5/30/2012

The value of trading (exempted service) considered for availment of proportionate credit [ sales- pur]
Banking and financial services -50% of the credit availed Services relating to life insurance or management of ULIPs -20% of credit availed Rule 6(5) omitted

Hiregange

19

SERVICE TAX-NEW SERVICES

5/30/2012

Restaurant Service- provided by a restaurant Serving of food & beverages (including alcohol) to any person Air conditioned Restaurant Licensed to serve Liquor Abatement of 70% Hotel Accommodation Accommodation for a continuous period less than 3 months A hotel, inn, guest house, club or campsite Declared Tariff >Rs 1000 per day 50% abatement

20

Hiregange

HEALTH SERVICE- EXTENSION PRESENT

5/30/2012

All services-including diagnostic services The service provider -Clinical Establishment Central AC & >25 beds at any time in FY. Diagnostic Services By clinical establishment+ aid of lab/medical equipment The service provider is any entity independent/part of clinical establishment. Doctor The diagnosis, treatment or care for illness, disease, injury, deformity, abnormality or pregnancy. Doctor, not employee of the clinical establishment The service provided in clinical establishment.

21

Hiregange

Exclusion: Government

or a local authority.

ST- EXTENSION PRESENT

5/30/2012

Commercial Coaching Service: To include Preschool coaching and training centre or any institute or establishment issues any certificate or diploma or degree or any educational qualification recognized by law-All colleges/deemed colleges/Institutions/Universities covered Authorized Service Centre: All service providers not just authorized Doing repair, reconditioning, restoration To cover decoration and other similar services Motor vehicle excludes three wheeler scooter, auto rickshaw, goods carriage

22

Hiregange

ST- EXPANSION
5/30/2012

Clubs & Association: To include services provided to members as well as others Exemption for the membership fee of association representing the industry or commerce- from 16.06.2005 to 31.03.2008(both inclusive) Section 96J Refund within 6 months can be gotten Life Insurance Business: Any service in relation to life insurance business Earlier only risk cover Business Support Services: Administrative

23

Hiregange

ST EXPANSION- LAWYERS
5/30/2012

To any person-by business entityadvise/consultancy/technical assistance Therefore individuals provIding advise not liable

Hiregange

To any business entity-by any personRepresentational services added [ presidential assent]-Court/Tribunal/Authority Therefore representational services to individuals may not be covered.

24

LAWYERS
5/30/2012

To business entity by Arbitral Tribunal[ notified date]

Individuals services to business entityRepresentational services- Yes

Hiregange

What about representational services of Cas/ CWAs/ CSs?-Should be covered as zzzzm talks of any person to BE. Same services to individuals would not be liable.

25

RESTRICTIVE CREDITS
5/30/2012

Sub Contractors opting to pay ST on gross amount after availing credit on inputs as well. Main contractor availing abatement under Not 12/2003 or Composition- able to avail the credit indirectly in inputs Service Tax Paid on: Input Services Erection, commissioning, installation; commercial or industrial construction; construction of complex service Notfn. 1/2011-ST- limited to 40%

26

Hiregange

EXEMPTIONS
5/30/2012

Determination of value-Money changing Banking and Other Financial services/Forex broker Forex Dealers 1% of gross amount received or normal rate on difference between buy sell Where both currencies-other than Indian Rupees 1%-Lesser of the two received, if converted to Indian Rupees-Notfn.2/2011 Telecom SIM Gross amount

27

Hiregange

EXEMPTIONS
5/30/2012

Construction/completion services of new Residential Complex Jawahar Nehru National urban Revival, Rajiv Avaas Yogana Exhibitor Outside India-service by organiser of business exhibition. Transportation from Outside India to O/I-by Aircraft/Road/Rail General Insurance Business Rastriya Swasthiya Bima Yogana

28

Hiregange

EXEMPTIONS
5/30/2012

Works Contract within wholly within the Airport Works Contract provided wholly within The port or other port, for construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways 25%a ppilcable -75 % Abatement- service provided for transport of: Coastal goods; Goods through national waterway; or Goods through inland water.

29

Hiregange

EXPORT/ IMPORT - RATIONALISATION

5/30/2012

Services shifted from performance to recipientcredit rating agency, market research agency, technical testing, transport of goods by aircraft/ road/rail, opinion poll,

Hiregange

Services shifted into performance-Rail travel agent + Clinical establishment Services added to first category-immoveable property-builders special service
30

POINT OF TAXATION- RULES

Accrual Concept 20% more revenue in 2011-12, move towards GST Taxable Event Providing Service; Receipt of Advancepostponing billing risky

5/30/2012 Hiregange

Credits also on accrual basis What about professionals accounting on cash basis, what about accounting standards on revenue recognition, what about the fact that services cannot be taken back unlike goods. What about the huge discounts which have to be given? What about the bad debts?

31

WHAT CAN BE DONE?

5/30/2012

Billing for the current year to be completed fully to avoid unnecessary billing next year, even if accounting on cash basis. Individual representation thru known elected members Associations to take up strongly ICAI representation Grounds Cash basis of accounting as receipt unsure Revenue Recognition AS9 Service cannot to taken back

32

Hiregange

INTEREST & PENALTY

5/30/2012

Earlier 13 % increased to 18% For delayed payment For amounts collected in excess- Notfn. 15/2011 For SP below Rs.60 lakhs [payt period 90 days from order date} limited to 15%. Increased to Rs.20,000/- For late filing of returns Unaccounted transactions-mandatory 100% penalty Penalty u/s 78 waived only where transactions captured in records

33

Hiregange

TAX COMPLIANCE INITIATIVE

5/30/2012

Voluntary/ demand by department Penalty equal to 50% of duty determined for cases involving fraud, collusion, willful mis-statement etc where the extended period is invoked apply when noticed during an audit, investigation or verification that duty has not been levied, short levied, not paid or short paid or erroneously refunded transactions to which such duty relates are entered in the specified records

34

Hiregange

OTHER INITIATIVES
5/30/2012

Exporters of services drawback scheme when?? 85,000 Crores outstanding!!!!!- promissory estoppel applicable?? EOSR 2005

Hiregange

SEZ Exemption-provided and wholly consumed within SEZ SEZ Special Refund Scheme-authorized operations Specified Services listed in Rule3(1)(i)/(ii)Export of Service Rules & Other services Service providers to SEZ No need to reverse inputs/ capital goods/ input services?

35

IDEAL BUDGET

Simple = Understood by a literate person, by some of ST authority, at least by a man of commerce, certainly by an advisor, without doubt by a specialised advocate/ CA.

Fair = Economically challenged safeguarded and others equally applicable, no different interpretation in different states, divisions, range, Audit parties; drafted considering stakeholders concerns/ suggestions; law exposed before implementation ; rules fair; enough time to comply
36

5/30/2012

Hiregange

IDEAL BUDGET
5/30/2012

Certain = No changes frequently, at least fundamental direction, not upsetting judicial precedents, anterioirity a part of law or at least only prospective application and no retrospectivity

Hiregange

Transparent= Game plan known in advance, budget exercise involved, Integrity of FM/ CBEC built, no secrecy, tax payer can plan his investments, direction

37

IDEAL BUDGET
5/30/2012

Used as tool to Steer the Economy: Lower rates, remove multiplicity of taxes and rates, protect local manufacturing/ agriculture, build world class infrastructure, be transparent on own expenditure

Hiregange

Maker Checker principle: Law to be laid down by parliament, administered by the executive. This divide is not evident anymore.
Good Governance: Accountability of the executive, no corruption, no inordinate delays, no frivolous demands

38

IDEAL AS PER FM

Moderate Taxation

5/30/2012

Simple ST law?, Changes every year based on Tribunal/ Higher judgments? Taxing sale transactions also?
Easy for Tax Collector??? Whom are we serving Medium term objectives: Maintain growth, Inclusive methodology, Governance emphasis. Action important not rhetoric's

Hiregange

39

ATTITUDE
5/30/2012 Hiregange

He is able who thinks he is able.-Buddha

40

Ive failed over and over and over again in my life, 41 and thats why I succeed. - Michael Jordan

5/30/2012 Hiregange

QUESTIONS?? MHIREGANGE@GMAIL.COM
Have an Empowered 2011